Paying Zero S Corporation Shareholder-Employee Wages

Business man wearing a dunce hatI stumbled onto an online forum discussion recently where participants were berating some new S corporation owner about paying zero S corporation shareholder-employee wages.

Now, I need to tell you that you are required if you operate as an S corporation to pay shareholders reasonable compensation. The Subchapter S election acceptance letter you get from the IRS makes this point in firm, almost threatening language.

But the truth is, a variety of situations exist where an S corporation can set a shareholder-employee’s wage to zero.

Zero-wages Scenario #1: You’re Not Working

So a first, maybe too obvious situation: If you’re not working in an S corporation—like say you used to work in the business but you’ve now retired—you don’t need to pay yourself wages.

A “reasonable wages” amount for someone who doesn’t work in the business equals zero.

By the way, if you are going to take this position, you obviously need other people working in the business doing the job you used to do if the business still actively operates.

And just to make this obvious but awkward point: If you’re really working in the business? Even if you’re working only a little bit? Hey, you have to pay yourself wages. No question.

Note: A decade or so ago, I heard an IRS technical issues advisor (which is a sort of internal consultant at the Internal Revenue Service) cleverly make this point in a practitioner forum, “Hey, if grandma is retired in Florida and her grandkids are running the S corporation back in Seattle, we’re not going to try and argue she needs to have shareholder-employee compensation.”

Zero-wages Scenario #2: You Don’t Take Distributions

Another supportable zero-wages scenario occurs when the S corporation pays no wages but also pays no distributions or other payments to a shareholder.

In other words, if you have an S corporation that makes $100,000 in profit and the corporation pays out none of this profit as wages or as distributions to shareholders, you don’t need to worry about a zero wages situation.

Here’s why: The IRS can’t force you process payroll. They can only re-categorize amounts (like distributions) that you’ve paid out to a shareholder as wages if you haven’t paid reasonable compensation. Accordingly, if you haven’t paid out anything to a shareholder—if all the profits for the year still sit there in the company checking out—you don’t need to worry about not having reasonable compensation for a shareholder.

By the way, a quick caveat: This “no distributions to re-categorize” scenario isn’t a long-term solution. Eventually you’ll want to withdraw your profits. And when those draws start, you’ll have to start taking care of the payroll business.

But sometimes the “no distributions to re-categorize” scenario solves the shareholder-employee compensation for a new S corporation.

Zero-wages Scenario #3: You’re Losing Money

One final potential zero-wages scenario is worth mentioning: the case where your S corporation is losing money.

Now let me clarify that probably this scenario is a variant of the scenario where you’re not taking distributions. But because this is a special mess, let’s talk specifically about the situation where your S corporation loses money and you’re taking a salary.

If your S corporation loses money, you have probably stopped your distributions. And you may even be feeding the losses by investing additional personal funds in the business.

In this case, you can probably also stop or pause shareholder-employee payroll.

You don’t want to be in situation where you, for example, invest an additional $20,000 into your S corporation so you can pay yourself another $20,000 of wages. This set of transactions has no income tax effect. The $20,000 of wages expense deduction on the S corporation’s tax return and the $20,000 of wages income you receive from the corporation cancel each other out.

But the roundtrip the money takes probably triggers $3,000 to $4,000 of payroll taxes. When you pull the $20,000 back out of the corporation in the form of wages, you’ll owe roughly $3,000 of Social Security and Medicare taxes and then probably also state unemployment taxes and workers compensation taxes.

If you are in a situation where your S corporation loses money, therefore, talk with your tax accountant about temporarily zero-ing out your shareholder-employee payroll.

Two Downloadable eBooks You Might Find Interesting

People regularly email or call and ask about a couple of things: how to set an S corporation salary and how to do payroll for a single employee situation easily and cheaply.

Accordingly, we’ve published a couple of economical ebooks: our Five Minute Payroll ebook and our Setting Low Salaries for S Corporations ebook.


Completely updated for 2016, the Five Minute Payroll ebook explains how to do simple cookie-cutter payroll for most one-employee S Corporations using base salary amounts of $10,000 a quarter or $16,000 a quarter. (These amounts mean annual compensation levels of $40,000 or $64,000 for a shareholder employee and this may work, especially if combined with a pension or health benefits, for almost everyone.)

The Five Minute Payroll e-book includes sample IRS forms you can copy to get your quarter end or year end payroll done in a few minutes, including 941s, W-2/W-3 and 940. Furthermore, the e-book provides some common-sensed tips you can use to set a reasonable salary for your S corporation and to minimize your state payroll taxes burden, too.

If you’re interested in buying and then downloading this ebook, click this button:

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Written in plain, everyday language, our Setting Low Salaries of S Corporations ebook explains how to save thousands of dollars a year with your S corporation–but at the same time how you can do so ethically and responsibly and in a way that minimizes both the chance that your S corporation tax return will be examined and the chance your S corporation salary will be rejected by the Internal Revenue Service.

cover of setting low s corporations salaries ebook Priced at $37.95, this ebook should save you thousands of dollars a year in payroll taxes. To buy and download the S corporation salaries ebook, click this button:

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Accordingly, if you want help with this tax decision, you may also want to get and carefully read my short, easy-to-understand ebook, Setting Low Salaries for S Corporations. But do note: If you’re a CPA firm client, you don’t need to purchase this ebook. Just email us and ask for your complimentary copy.

Click for more info or to purchase and download

A final comment. All of our monographs and ebooks come with a money back guarantee. If you don’t think what we deliver is worth the price you’ve paid, just let us know and we’ll refund your purchase price. (Refunding your purchase price, by the way, often takes a work day or two because the funds get handled manually when we’re in the office.


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How Taxes Kill Successful Businesses

People at a graveside serviceA handful of times this summer, I’ve helped successful business owners with a surprisingly common problem: That problem being a tax burden that seems to kill or nearly kills a growing small business.

Let me, in apolitical, practical terms, explain why this happens and what successful businesses need to be super careful about.

And just to make this broken-record admonition: Remember this isn’t a political blog. We’re not going to talk about the fairness or the unfairness of our tax system. Rather, we’re going to talk about how income taxes can seem to kill a successful business. And about what business owners can do to sidestep the trap.

Setting the Stage

Let me set the stage with a sort of extreme example, but one that will make this all rather clear.

Assume you’ve got a decent little business. You work hard. And you’re not exactly living the high life. But you do pretty well, thank you.

And then, let’s assume, that one year something clicks. And your sales explode along with your profits. In fact, to pick a number, let’s say your profits grow by $1,000,000. Boom.

How Good Times Turn into Bad Times

Despite what lots of people might think, you my friend, are in potentially dangerous territory in many industries. And here’s why. If your profits have grown by, per our example, a $1,000,000, your business revenues have really grown. Maybe revenues are up $4 million? Who knows, but some big bump.

And this growth means there’s a something else “financial” going on. If your revenues grow, your balance sheet’s assets need to grow.

If your profits are up by $1,000,000, for example, your revenues might be up $4 million and  your expenses up $3 million. (This gives you that extra $1,000,000 of profit.)

And almost surely, this growth in revenue and expenses and profits also means that all the stuff on your balance sheet grows, too.

Probably you’re holding more cash. (You need to.) You’ve got way more money tied up in inventory. And in accounts receivable. And then, probably, you’ll find yourself growing other assets, too. Maybe you need more fixtures and equipment.

In a sense, nothing seems wrong with this scenario. You have grown your business revenues by $4,000,000 and grown your profits by $1,000,000. Surely that means you can grow your balance sheet, too, right? By as much as you need to?

Actually, no. You can’t. And that’s the cruel reality that often first appears when you go to pay your business taxes after a period of fast growth.

Here’s why: You will find it amazingly easy to forget that you need to pay taxes on the $1,000,000. Probably roughly $400,000 in income taxes. (I’m guessing here. The actual rate could be a little higher or a little lower depending on the industry you’re in and on the state or states were you operate.)

By the way, just to make this point: You of course know you need to pay taxes on the profit you earn. But what’s easy to forget if all that profit gets reinvested in inventory or accounts receivable or other assets is that you still owe the taxes.

The real problem is you would like to grow your business  (or maybe need to grow your business) by reinvesting pre-tax business profits. But you can’t do that. You need to grow your business by reinvesting after-tax business profits.

What’s Really Going On Here

As noted, the scenario described in this blog post seems like a tax problem. But really the tax problem is a symptom of a common entrepreneurial challenge: funding sustained growth in your business.

Often small businesses primarily or solely fund growth by reinvesting profits. And that’s tricky because you often don’t know the taxes you’ll pay on the profits until long after you’ve reinvested the profits.

And then there’s something else going on here, too. Often, small business owners not only don’t recognize up front that they need to plan for the bump in taxes they’ll pay on the bump in their profits. They also don’t connect the amount of after-tax profits they have to reinvest with a growth rate they support.

The reality is this: If you want to grow your revenues and expenses and profits by some percentage (say 50%) yearly, you need to grow your balance sheet’s values, such as your working capital, by that same percentage (so that would be 50% in our example).

If you made $1,000,000 pre-tax, paid $400,000 in taxes, and have $600,000 leftover and if you were willing to invest all of that after-tax profit in the business, the ratio of $600,000 to your total assets roughly sets the limit to your growth.

If your business requires $1,200,000 in assets, because $600,000 divided by $1,200,000 equals 50%, the $600,000 of after-tax profit suggests you can comfortably grow by 50%.

If your business require $6,000,000 in assets, because $600,000 divided by $6,000,000 equals 10%, that $600,000 of reinvested after-tax profit suggests you can comfortably grow by 10%.

Different Industries Experience Difference Levels of Pain

I’m going to talk about how you can sort of fix this problem and then the way that big sophisticated businesses fix this problem (which they face too). But let me make three tangential comments.

First, entrepreneurs operating in industries that require lots of working capital get hit hardest with the conundrum we’re talking about here (which is broadly known as the “sustainable growth” issue.) The reason is additional investments in things like inventory and accounts receivable may require lots of cash that comes from reinvested, after-tax profits. However, any business, even lean service businesses, can experience financial constraints to growth from taxes if the business grows fast enough.

Second, while taxes (because they represent the biggest allocation of a small firm’s profits) often represent the obvious and most significant constraint when you’re talking about the sustainable growth a small business can run, taxes aren’t the only constraint. Even if a firm’s tax rate was zero, the firm would still find revenue growth limited by the rate at which the firm can grow its balance sheet.

Third, I used gigantic numbers in the example above… examples way bigger than most small businesses would find “real.” But everything discussed here applies if you’re talking about a smaller bump in revenues and profits, too. A small business might get into real trouble even with numbers that are all only ten percent the size of those provided in the preceding paragraphs.

Nibbling Around the Edges of the Problem

A business owner can deal with this constrained growth problem in two general ways.

A first way—what we might call nibbling around the edges of the problem—is to try and come up with a bit of cash here and a bit of cash there to pay the taxes or to grow the balance sheet.

A credit line from the bank. A loan from your father-in-law. A midnight raid on your pension account. Stuff like that.

The nibbling, as a very short term approach, sort of works. But only as a very short-term “solution.”

Nibbling, as a tactic, quickly runs out of juice. Nobody can continue to go back to the bank or the father-in-law or the retirement account time and time again.

Nibbling, then, isn’t a way to support sustained growth. It’s only a temporary Band-Aid on the problem.

How Big Businesses Solve Sustainable Growth Issue

The only practical way to not turn strong growth in your business into a cancer that may kill the business is to limit your growth to the rate you can grow your balance sheet.

In other words, if you can only grow your balance sheet by ten percent a year, you can only sustainably grow your revenues by ten percent a year.

Don’t like that ten percent limit? No problem. To grow instead by 50 percent a year,  you just need to figure out how to first grow your balance sheet by 50 percent.

Note: The Wikipedia article on sustainable growth rates is pretty good. (Check it out here.)

This blog post is getting a little long in the tooth, so let me close by making a handful of quick final comments about creating a long-term solution to a sustainable growth problem:

First, finding your growth constrained by taxes isn’t really a tax problem. It seems like it is. But it isn’t. Your problem is actually an imbalance between available resources and opportunities to grow revenue.

Second, some problems can be ignored and they eventually go away. This problem, however, doesn’t go away simply because you power through the financial stress. In fact, if you keep growing, the problem only gets worse. By the way, note that I’m not saying the problem stays just as bad… I’m saying however bad the problem is today, if you keep growing faster than you can sustain, the problem will get worse. And worse. And worse.

Third, the only two answers in the situation where you’re constrained financially by the growth you can support is to either (a) slow your growth to the rate that the existing ownership can grow their capital investment in the business or (b) to find outside investors who can share in growing the balance sheet. No kidding if you stop growing, things will quickly come back into balance. And if you slow growth, things will begin to noticeably improve.



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Accounting System Recommendations for Novice Bookkeepers

Overworked bookkeeper picture

Small-business owners ask us all the time about how they should set up their accounting system. Accordingly, in our office, the accountants have talked about this issue—which accounting system recommendations to give as general guidelines—quite a lot.

Here are our thoughts.

Thought #1: Use QuickBooks Online

Okay, so a first question is which accounting software you should use. And we’re going to give you a very standard, somewhat boring answer. We think you should use QuickBooks Online. And for a very simple reason: so you can quickly and easily get help from a CPA when you need it.

For the sake of fairness, we’ll note that for many businesses, desktop accounting software is a better fit. For example, QuickBooks desktop has a more robust set of features, as you’d expect from a more established product. Because of its better and more advanced features, QuickBooks desktop is a good fit for a wider variety of businesses. And if your business has an in-house CPA acting as a comptroller or CFO, then there’s often not a compelling reason to go with QuickBooks Online over QuickBooks desktop.

Nevertheless, we think most small businesses ought to use QuickBooks Online. Your accountant will be able to provide you with very efficient, cost-effective help when you need it. Most accountants already know the product. And with QuickBooks, you’re dealing with a big software company (Intuit) that’ll very likely be around for all of the years you’ll run your business.

Thought #2: Have a Business-Only Checking Account

We think you need a business-only checking account, something that’s just for your business that you use to “catch” or “collect” all of your income and from which you pay all of your expenses.

And just to make this important, if slightly redundant, point: Don’t ever charge personal expenses to business accounts, and don’t ever charge business expenses to personal accounts. Doing so creates the kind of mess that really only a knowledgeable accountant can appropriately clean up and look after.

Note: If your business needs access to credit sometimes, you might also want to have a business credit card. But make that a business-only account too.

Thought #3: Connect Your Bank Account to QuickBooks Online

One really neat feature of QuickBooks Online is that you can connect your QuickBooks Online bank account information to your actual bank’s online account information. And if you do this, QuickBooks Online regularly matches transactions across the accounts, which means you more easily keep your bank account’s balances and its list of transactions up to date.

Connecting QuickBooks Online and your bank account by far represents the single most effective way to avoid a multitude of errors in your books. And you eliminate a lot of manual data-entry work, too. Just use the “update” feature every few days to track your expenses.

Intuit’s tutorial on connecting your bank account to QuickBooks Online is available here:

Thought #4: Reconcile Your Bank Account Every Month

While we’re on the subject of bank accounts, do you reconcile your bank accounts every month? You’ll save time over the year and keep your accounting system clean.

By the way, if you have trouble the first time you reconcile the bank account, ask a CPA to do the first one for you. After someone’s done your first bank account reconciliation correctly, subsequent reconciliations will be very straightforward as long as you were good about following the recommendations discussed in thought #3 during the statement period.

Intuit’s tutorial on reconciling the bank account in QuickBooks Online is available here:

Thought #5: Don’t Do Payroll Accounting Yourself

And our final thought…

If you have more than one employee and you pay your employees on a regular schedule, then you probably want to use an integrated payroll product such as Intuit Full-Service Payroll or Gusto to manage payroll for you. Your CPA can help you do the initial setup for one of these payroll systems.

However, if you’re in the unusual situation where you have only one employee and you don’t pay him or her very regularly (e.g., you’re a one-man-band S corporation that has to do payroll as a tax law formality), then you’ll possibly get a better deal hiring a local tax professional to calculate one payroll check for you once a year, in addition to preparing the payroll tax forms. Ask this tax accountant if he or she will record the payroll transactions for you in QuickBooks Online. The answer will probably be yes.

Note: We’ve also got an economical DIY payroll approach that works for one-employee businesses in states with super simple state payment tax systems (such as Washington State). You can click here for more information about that option.

If You Are a Small-Business Owner, You’re Probably Paying Too Much Tax!

Picture of Small Business Tax Deduction Secrets ebookFor small-business owners, every penny counts, yet they often don’t maximize their legitimate tax deductions. They don’t structure their business operations to protect appropriate deductions. They often don’t do enough to create new deductions. And seldom do they understand how to recycle, or double-deduct, amounts that can be used more than once.

What a financial tragedy! Getting smarter about tax deductions can save business owners a bundle.

If you’re thinking maybe you can do a better job with your tax deductions, consider our ebook Small Business Tax Deduction Secrets.

This 40-page ebook ($37.95) provides detailed instructions about how you can save thousands of dollars every year in income and related taxes simply by more effectively using legitimate small-business tax deductions. Want to know more? Click here. Interested in starting to save on taxes? Click the button below to purchase your copy.

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Tip: If you’re one of our clients, don’t purchase this ebook—or any of our other ebooks. Just email us and request your complimentary copy.

Immediately Downloadable & Money-Back Guarantee

The book is instantly downloadable. You get the ebook when you purchase it.

Rest assured with our money-back guarantee. If you don’t find the information you need or want, we will return your purchase price. Just email and ask for a refund.

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Paying Payroll Taxes to Bump Pension Contributions

Happy Couple Shopping for an RV

Happy Couple Shopping for an RV

Jim Dahle, the physician who edits the White Coat Investor blog, hypothesized a week or so ago that it might make sense to add your spouse to a small business as a partner or employee in order to bump the family’s pension fund contributions.

His blog post, which you can read here, lists a bunch of hard and soft reasons for this idea. Nearly all of which I agree with. But his post started a friendly discussion between the two of us about accounting for the relative tax costs and tax benefits of this choice.

The math gets a little, well, boring. But the discussion is a really good one to have. It applies to every married small business owner wondering if he or she should add a spouse to the payroll in order to get the spouse (and the family) a bigger pension.

Accordingly, I’m going to describe the practical situation Jim and I talked about and then present some numbers that show it’s hard to make the tax benefits work the way you want them to work.

The Example We’ll Look At

We need an example to make the discussion concrete. So let me create this simplified fictional situation inspired by the financial picture Dr. Dahle shares at his blog.

Assume you’re a highly-compensated professional with an income that already puts you into the top marginal tax bracket. We’ll assume this “first” job provides you with something like a 401(k) plan. Further assume that you find yourself with the good luck to have another business that generates $400,000 a year in profits.

In this case, you sort of have two choices. You can probably use the $400,000 of business profit to make a single SEP-IRA deduction for yourself. The maximum is $53,000 for 2016.

Or you can share the compensation with your spouse meaning that you can split the $400,000 of earnings into two $200,000 slices. And in this case, you guys can save close to $80,000, or roughly about $40,000 each into a SEP-IRA.

The rub with this second option is that it means the business may need to pay a 12.4% Social Security on your spouse’s first $118,000 of income. And this extra FICA adds up to nearly $15,000 of tax.

You see the trade-off, right? Bigger pension fund contribution and so more tax deferral… but a giant hit from the extra Social Security taxes you’ll pay.

Calculating the Annual Savings

I constructed an Excel scratchpad workbook that estimates the savings you accumulate if you save as much of the $400,000 as you can, enjoy good fortune over 25 years, and earn a real rate of return of five percent.

I’m going to present several simple tables that summarize the calculations. But let me first share two thoughts about the taxes you pay on your taxable accounts.

First, though you will need to pay income taxes on the dividends you earn on your taxable account, note that the tax rate on qualified dividends will be lower than your marginal rate. (Probably about 50% less.) Further, you might choose a mutual fund that focuses on growth stocks, which means low or no dividends. Or you might invest in an international stock mutual fund which will give you foreign tax credits (on the foreign stock dividends) which may wipe out a big chunk of the tax on your dividends. (In my scratchpad calculations, I assume the tax rate on any dividends equals 25%, but for the reasons just mentioned I think this may overstate the taxes.)

Second, the scratchpad calculations assume that you don’t realize capital gains, or least not much, because you’re investing in something like an index fund which you can just let roll and roll far into the future.

You may disagree with my “tax-lite” way of investing, but if you invest in that manner, you may enjoy a savings program that looks something like that shown in the table below if you save whatever portion of the $400,000 is leftover after paying any payroll and income taxes.

Note: The calculations that follow assume the income tax rate is the federal top rate of 39.6% and that the payroll taxes rates are that 3.8% Medicare tax and, on the first $118,000 of your spouse’s share of the business profit, an additional 12.4% FICA tax.

Amount One Participant Two Participants
Pretax income to save $400,000 $400,000
Retirement savings $53,000 $77,377
Leftover to save $347,000 $322,623
Less: income taxes on leftover $135,115 $122,565
Less: payroll taxes $15,200 $29,832
After-tax savings $196,685 $170,226

Let me highlight the key bits shown in the table above. With one SEP, you save $53,000 into your SEP and then have about $197,000 after taxes for additional savings. With two SEPs, you save $77,377 into your SEP accounts and have about $170,000 after taxes for additional savings.

Note: I was a little rough in my calculations of the how the employer component of the payroll taxes saves you money on income taxes and payroll taxes. Er, sorry…

Forecasting the Accumulations

Once you have the savings amounts calculated, it’s straight forward to use a spreadsheet like Microsoft Excel to forecast future values.

The table that follows shows the future values I estimated. Note that the table not only shows the future value of the taxable savings but breaks those balances into components: original contributions, already taxed dividends that have been reinvested, and appreciation that hasn’t yet been taxed but will be when you liquidate the portfolio:

Amount One Participant Two Participants
Future value of SEP(s) $2,529,536 $3,692,970
Future value taxable $8,765,299 $7,586,173
Principal $4,917,120 $4,255,659
Reinvested dividends $1,594,316 $1,379,846
Unrealized appreciation $2,253,863 $1,950,669

Annuitizing the Savings Over Retirement

With the future values in hand, it’s pretty easy to calculate the payments that annuitize these amounts over your retirement. If you draw down your balances over thirty years of retirement, for example, the annual payout looks like that shown in the next table.

Amount One Participant Two Participants
Taxable annuity $570,195 493,491
Capital gains and dividend taxes $76,618 $66,311
After-tax taxable annuity $493,578 $427,181
Pre-tax annuity $164,550 $240,233
Regular income tax $65,162 $95,132
After-tax SEP annuity $99,388 $145,101
Total combined after-tax income $592,966 $572,281

Okay, the key takeaway from the preceding table? Well, on an after-tax basis, you end up with about $20,000 more income each year if you use a single SEP account.

Note that I’ve calculated the ordinary income taxes and capital gains and qualified dividend taxes I’m guessing you’ll pay using the top marginal rate used for the accumulation phase. This is a little sloppy, I agree. But this little shortcut should be overstating the tax burden by the same amount for both pension plan options because in this scenario we’re assuming you’re well into the top tax bracket. Note too that the income shown above isn’t per the example your only income.  You’ll also  be drawing down the 401(k) from your regular job. And you’ll be enjoying Social Security benefits.

Summarizing the Situation

So the preceding paragraphs present a very specialized situation… a situation sort of like that discussed at the White Coat Investor blog. But what you see here hints at some common realities. Let me quickly summarize what seem to me to be the key points.

First point: Adding your spouse to your business as a co-owner or employee absolutely does bump your pension contribution and the tax deferral from the contribution. No doubt. Accordingly, if you really need to catch up with your pension, you maybe want to add a spouse to the business. In a sense, who cares about the taxes in this situation. You need to focus on saving.

Note: If you’re really light on the amounts you’ve accumulated in your retirement accounts, your tax rate in retirement will be really low and so tax deferred options make a lot more sense than  they do in the scenario presented above. (See here for a longer discussion about why the numbers work out this way.)

Second point: The payroll taxes you pay are brutal if you do add a spouse and he or she needs to pay the 12.4% FICA tax. In many cases–including the scenario provided in the preceding paragraphs–you don’t save money by adding a spouse.

Note: In the example situation discussed in this post, note that while you bump your pension fund contributions by about $30,000, you pay about an extra $15,000 to do so. That nearly 50% “load” eats up any benefit of the deferral.

Third point: You can often create very tax-efficient taxable savings programs. Obviously, long-term capital gains and qualified dividends receive preferential tax treatment, for example. You largely control when (and even if) you realize capital gains. You may be able to use foreign tax credits in a taxable account that are not otherwise available to you in a tax-deferred account and these credits can in effect pay a big chunk of your US income taxes. Further, and not to be too negative, but if you leave a taxable account to your heirs, the step-up in basis at your  death will eliminate the potential capital gains taxed baked into your taxable portfolio.

A fourth point: Putting your spouse on the payroll might result in your family ultimately getting bigger Social Security benefits. But you want to do the math on this. Remember that a spouse will automatically get the option of a benefit equal to half of yours. Accordingly, best case, you’ll pay full price for Social Security benefits but only get half a benefit.

Some Other Retirement Related Posts

If you found this post useful, you might also find these semi-related posts interesting:

Real Estate vs IRA and 401(k) Accounts: Part I I am not a big fan of direct real estate investment, but one has to admit that real estate provides some spectacular tax benefits as compared to things like IRAs and 401(k) accounts…

$10,000,000 IRAs and 401(k)s Possible? A look at the absolute best-case outcomes possible with retirement style accounts shows you can accumulate a lot… but not as much as some people hope.

Worst-case Scenarios for Roth-style Accounts One of the posts in a three-part series I did about the common practical problems with using Roth-style retirement accounts.




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The #1 Problem In Families, According to Kids? Chaos And Stressed Out Parents.


My wife and I adopted 2 beautiful boys last year, and one of the things that having them in our lives has done for us is to make us realize this:

All kids want some form of control over their environment and what happens to them.

That is, they want to have a say in what choices they have on a daily basis, and they do better when they have them.

In our case, even more so because our kids have had few — if any — choices from the time they were born until they ended up in our family. 

Some studies have illustrated quite clearly that kids do better when they have a say in their choices. Bruce Feiler, author and New York Times columnist, tried it in the form of “family meetings” where the kids could decide their own rewards and punishments for their behavior and accomplishments during the previous week. 

The results startled even him.


His book, The Secrets of Happy Families: Improve Your Mornings, Tell Your Family History, Fight Smarter, Go Out and Play, and Much More, digs into the concepts in wonderful ways. 

And there are a bunch more of his videos on Big Think, too. Go check ’em out!

The Formula That Puts You In Control Of Success

Jack Canfield, author of Chicken Soup for the Soul, often tells audiences the story of how his book came to be. He and co-author Mark Hansen were motivational speakers when they came up with the idea for an inspirational book. It would tell real stories about real people, many of them from their audiences.

Canfield says he wrote every night from 10 pm until about 1 am for about a year to get the book finished. Then, he came up with a title that, in his own words, “gave me goosebumps.” He was certain it would be a huge hit immediately. After rejection from 144 publishers in a little over a year, they finally found a small publisher in Florida.  The empire that was built from that one little book has been stunning.

Canfield’s success theory

According to Canfield, he lives by one principle only, and that principle has been the cause of his success. The principle is that we have to accept 100% responsibility for all that happens to us in life. In accepting that responsibility, we control our thoughts, behaviors and actions and our responses to everything that is going on around us that we cannot control.

Success theory in practice

The equation that Canfield lives by is E+R =O. Here is how it works.

E = events. Take a look at the world around you. There is certainly plenty to be worried and anxious about. Wages are not going up, and the economy seems stuck. There is a mess in the Middle East that is impacting the whole world. There are events going on in your workplace that are negative. You personally cannot control those things; you can only control your responses to them. And that’s where the “R” comes in.

R = responses. There are 3 responses that we have to events. We respond with thoughts, images that we place in our minds, and behaviors. These tend to be negative when we focus on the events we cannot control. We worry, we fear, we visualize bad outcomes, and we talk about these fears and worries with others. When we do this, the events control us. If, on the other hand, we change those responses from negative to at least neutral, the events no longer control us. And this results in the “O,” or outcomes.

O = outcomes. When our responses change, we can then visualize different outcomes. We can see what it is we want to happen rather than what those events are saying will happen.

“There is no right reaction. There is only your reaction.”  – Jack Canfield

How to use the canfield theory of success

The most important element of this success equation is to shut out the events you cannot control and then to identify your life’s purpose. If you start with knowledge of your purpose, then the only events that will consume you are those that you choose to cause – the actions you take that will get your closer to your purpose (goal).

Here are the 5 steps:
  1. Finding your purpose is actually pretty easy. What are you passionate about? You may have strayed from that passion because of outside events (e.g., taking a job you don’t like for the security of a paycheck in a bad economy). But until you align yourself with your purpose, events will continue to control you.
  2. Set goals that align with your purpose. Do you want to be a writer? Then set a goal to be one.
  3. Visualize the outcome. See yourself as a writer, a teacher, a lawyer, or whatever it is that you know is your purpose.
  4. Take action toward that purpose fulfillment. Will there be hard work involved? Of course. But you can  develop the habit of creating the events that will fulfill that purpose in small steps. You are building the foundation, bit by bit. Every day, create 5 events that will take you closer to your goal. Make a list of those 5 actions (events) and put it in a visible place, checking each one off as it occurs. Every day that foundation gets a little bigger, because you have created 5 more events.
  5. Keep visualizing your outcome so that your optimism grows.

Success is not a chance event

Success can only be defined as fulfilling your purpose in life, as engaging yourself in that work about which you have passion. If success were only about money, then we could say that someone who wins the lottery is a success. Given that 95% of those winners are broke within 5 years of their wins, however, would tell us otherwise. All of that money without any thought to one’s life purpose is just a chance event that does not bring success.

“Slow down and take the time to really see. Take a moment to see what is going on around you right now, right where you are. You may be missing something wonderful.” ― Jeffrey Michael Thomas

We have to define success correctly, find our life purpose, create our own events that fulfill that purpose, and then fully enjoy the outcomes that we have visualized for ourselves. This is a life well lived.

Are you in control of your success? Please leave your thoughts in the comment section below!

8 Clear Signs of a Successful Life That Have Nothing to Do With Money or Fame

If you’re not careful you can end up chasing the wrong goals for the wrong reasons.

Oftentimes peoples goals are associated with making money or achieving a high level of status.

While there’s nothing wrong with wanting either of the above, you can be lead astray by chasing after them.

If money and fame weren’t part of the equation, how would you define success?

The Biggest Misconception People Have About Success

When you see someone who is wildly successful you look at their success in terms of the rewards it’s granted them. It might even lead you to believe they’re greedy or selfish. But oftentimes their wealth and status came from working on something that meant a great deal to them.

Take Bill Gates for example. Many people dislike him because he’s filthy rich, but do you think his primary aim in creating Microsoft was getting rich? No. He loved computers and loved building things.

Steve Jobs is another useful example. Jobs became incredibly wealthy and famous from founding Apple, but his goal was never to become rich, it was to make world class products. The love for design came first. The money and fame came second.

Sure, there are some people who’s primary aim is to make money and nothing more like Wall Street executives, but those types of people can actually end up being more miserable than us all.

Today I’m going to share some clear cut signs of success that have nothing to do with money or fame.

You Quit

Success happens when you quit living your life to please everyone around you. Success happens when you quit listening to the noise of the world and focus on what’s important to you. Success happens when you quit thinking reality is anything but what you want it to be. Quit viewing the world with the preconceived notions you were taught growing up. Quit being “realistic.” Quit worrying and start living.

You Try Things With Uncertain Outcomes

All of the worlds most successful people had to try something with an uncertain outcome. Even if things don’t go your way you learn a valuable lesson — it’s not the end of the world. You can try again and again. Success and failure are intertwined with one another. Find someone who’s achieved success and you’ll discover a string of failures along the way.

It doesn’t matter how many times you have failed, you only have to be right once. — Mark Cuban

You’re Polite

One of the most successful self-help books of all time, How to Win Friends And Influence People, offers these simple pieces of advice for being successful.

  • Smile
  • Be polite
  • Praise others for their good work
  • Don’t argue with other people

It’s astonishing how many people don’t have good manners. Treating people the right away pays dividends. Every person you encounter is the most important person in the world in their eyes — successful people know to treat them as such.

You Have Many Moments Where You Lose Yourself

A life well lived has many moments in a state of flow, otherwise described as being in the zone. Doing this type of deep work will leave you feeling fulfilled afterwards. Think back to a time where you’ve lost track of several hours while doing something — that’s flow. Your mission is to find work that allows you to experience that feeling as much as possible. The value of engagement trumps the value of money. Search for work you get completely lost in.

Someone Has Thanked You For What You’ve Done

Has anyone ever gone out of their way to thank you for your work? That’s success. No matter how bad you want success for yourself you’ll never get it until you find a way to provide value to other people. Your business isn’t about you — it’s about your customer. Your creative work isn’t about you — it’s about touching others. Every time someone leaves a kind comment or sends me a message thanking me for sharing with them it gives me more motivation to keep creating. Find success by giving.

You Pissed Someone Off

Because you believed in something. Because you have a (well-informed) opinion that others may disagree with. Because you had the audacity to say what we’re all afraid to say. Successful people don’t seek to maintain the status quo. When they see that the systems broken they look for ways to change it and find like-minded people to help them.

You Do Things That Excite You

The opposite of love is indifference, and the opposite of happiness is boredom. — Tim Ferriss, The 4 Hour Work Week.

Most people’s lives aren’t necessarily bad, but they’re terribly boring. This is why they need constant entertainment via the television. You’re successful if you trade comfort for excitement, a job with decent pay and benefits for a vocation, a monotonous existence for a life filled with rich experiences. Successful people collect memories, not dollar bills.

You Lived A Life That Met Your Expectations

That’s happiness in a nutshell — the only thing you have do to to be successful is live up to your own standards. Not the standards of society. Not the standards of your friends or family members.

Your dream doesn’t need to be predicated on money or status — being able to do what you enjoy and afford to go on the adventures you seek is all you need.

If your dream is to be a world class chef then cook your ass off. If your dream is to be a writer then write. If your dream is to raise a family and you do that well, then you’re successful.

We all deserve to be fully present — to live in a way that’s satisfying more often than not. Money and status are great, but as I said before they’re usually bi-products of working towards something with meaning and doing it well.

Define what success means to you and do what ever it takes to become it.

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6 Success Secrets Of The Super Motivated

As an author and motivational speaker and coach, I often get into discussions about what it takes for someone to get and stay motivated. What is their secret?

After talking to many people across the country I realize there is one discernible difference between someone who is motivated and someone who is not. It is in the way that they think. I call these people the super motivated. They realize the impact their own daily thinking has on their life.

Here are 6 tools the super motivated people use in order to get and stay motivated:


1. Exposure

The super motivated realize that the old concept of “garbage in garbage out” is very true. So rather than exposing themselves to negative news (like the evening blues cast) or negative television or even negative stories on the Internet, they avoid negativity and instead choose to focus on positive upbeat and inspiring information. They focus on good news, not the bad. They are not ostriches with their head in the sand- they know there is bad news in the world, they just choose not to spend time and energy on it. It’s a “waste of mind”.


2. Their goals are in writing

There is absolutely no question that one of the ways to improve your thought process is to write down your goals; short-term, midterm, and long-term. Writing them down and the action of actually looking at them on a regular and consistent basis will reinforce the direction which you are heading. This is sending a short reminder note to your brain consciously and subconsciously- telling it “hey this is what we’re doing.”

“You are never too old to set another goal or to dream a new dream.” – C.S. Lewis

3. Networking with positive people

Super motivated people realize that the quality of their life is in equal correlation to the quality of the people that they associate with. If you associate with negative people or toxic people, the people who are discouraging and negative, then you will be negative as well. I refer to these people as ESV’s, which stands for energy sucking vampires. So be very careful about who you associate with. If you have friends or family members who are negative or toxic you must limit your contact.


4. Keep a journal

Keeping a journal is another way to reinforce positive thinking and positive thoughts on a daily basis. Carve out a little time in the morning to write down positive affirmations and goals and dreams in your journal in order to get your day off on the right track. Hal Elrod referred to this practice in his book The Morning Miracle. If you start your day off by writing down positive thoughts goals and aspirations, you start your morning off on the sunny side of the street. I have tried this technique and I learned it can be a very powerful way to start your day. Try it, you will like it.


5. Modify what you say

What is interesting about people who are super motivated is they realize that what they say and how they say it affects their thinking. It’s almost like the chicken and the egg;  what you say it affects how you think what you think affects how you say it. The key is to catch yourself when you say something negative. If you’re giving a presentation at work don’t say “boy I sure hope it goes okay”. Instead say, “I am going to knock it out of the park and it’s going to be great.” Positive self- expectation and positive statements can change the way you think and believe it or not, your brain believes exactly what you tell it. If you verbally or mentally tell it something is bad, it believes it.


6. Think about how you think

As far as we know, we are the only species that have the ability to think about how we think. I don’t think turtles sitting on a log in the sun think about their life and how their thinking is affecting their life. You however, have the ability to think about how you think. I have found that once my thinking changed, my life changed dramatically both personally and professionally. Don’t underestimate the impact of your thinking both on a positive or negative level. It is the ultimate power tool.

“The only person you are destined to become is the person you decide to be.” – Ralph Waldo Emerson

So do you really want to have a great life and be extraordinary and not just average? Do you want to be fired up and achieve your dreams? Then you can decide to be that person- it’s all just a choice. I am now going to throw down the gauntlet. I am going to ask you to take some time today to pick 1-2 of the items from this article and commit to doing them this week. I guarantee it can change your life personally and professionally.

Which items are you choosing from the list to do this week and why?